A Garage Keeper Lien, or GKL, is a statutory lien which can be perfected by a vehicle repair facility in Michigan so long as the proper steps are followed.
A lien is, of course, an encumbrance that clouds a deed or title, preventing it from being sold and allowing the lienholder to foreclose or repossess the property in question.
A statutory lien is simply one that is allowed by virtue of a Michigan statute, as opposed to a lien allowed under what is known as the common law—or law arising from a judicial decision.
In Michigan, the Garage Keeper’s Lien Act (“the Act”) provides that a vehicle repair facility may, under the right circumstances and after perfecting the lien properly, auction a vehicle owned by a customer who has not paid his or her repair bill.
What Is Required to Properly Perfect a Garage Keeper Lien?
First, a “garage keeper” for purposes of the Act is a person or the heir, successor, or assignee of a person, who publicly offers to maintain or repair a vehicle or vehicle accessory for money or other property.
In other words, if your Uncle Larry offers to fix your car free in his back yard, he is not a “garage keeper” capable of perfecting a GKL on your car.
The Act requires that a commercial contract for repair or maintenance of the vehicle have been formed between the garage keeper and the owner of the vehicle, as defined by the Michigan Motor Vehicle Act.
This is important. In bankruptcy proceedings, it is not uncommon that a debtor either have possession and use of a vehicle titled to someone else or that a debtor turns out to be that other person whose name is on the title to a vehicle driven by a third party.
This scenario causes a number of problems in a Chapter 7 and Chapter 13 bankruptcy.
For purposes of this article, the problem it creates is that the person contracting for repair of a vehicle may be a person who drives and pays for the vehicle—but who is not the legal owner of the vehicle.
At least one judge of the Eastern District of Michigan Bankruptcy Court has ruled that, pursuant to the Michigan Motor Vehicle Act, the legal owner of a vehicle is the person whose name is on the title.
With regard to a Garage Keeper Lien, this is a problem for the garage keeper more than the debtor, however.
Presuming the right parties have formed the right contract for repair of a vehicle, the garage keeper’s ability to file for and perfect a GKL is triggered when:
- The garage keeper has actually performed the repairs;
- Is still in possession of the vehicle;
- The garage keeper held a valid license to operate a repair facility at the time that the repairs were made;
- The parties must have a valid, formal (i.e., written) storage agreement, if that service was provided rather than repairs.
- More than 225 days cannot have passed since the last repair was performed.
If these factors are in place for the garage keeper, it can then file an application with the Michigan Secretary of State for a GKL.
Once the Garage Keeper’s Lien is issued, the garage keeper will receive a certificate of foreclosure and bill of sale.
Any other lienholder—such as an automobile loan lender—will be listed in these documents.
The garage keeper must notice all interested parties of the time and date of an auction, and the vehicle owner and other interested parties are allowed a minimum of 30 days to satisfy the garage keeper’s demand for payment of the amount owed.
Storage charges are allowed in specific amounts.
The dollar value of the lien is capped at various levels depending upon the value of the vehicle in question.
Importantly, the Michigan Garage Keeper’s Lien has priority over any other lien on the vehicle.
Bankruptcy Filing and the Michigan Garage Keeper Lien
A basic truth about the bankruptcy process is that it will discharge a debtor’s personal liability for money obligations—but not a creditor’s rights over property that is collateral for those obligations.
The Automatic Stay prevents creditors from engaging in any activity to collect a debt owed prior to the filing of the bankruptcy proceeding. It stops garnishments, foreclosures, lawsuits, invoicing, collection phone-calls, and much more.
There are exceptions to the Automatic Stay’s power, however.
It will not stop an eviction proceeding where the landlord has already obtained a judgment of possession.
It will not stop the collection of child or support payments.
It will not stop the collection of money owed as a result of a criminal conviction or sentence (even parking tickets).
The Automatic Stay will also not require a garage keeper to return a vehicle that is encumbered by a properly obtained Garage Keeper Lien.
This is because the US Bankruptcy Code states that the Automatic Stay does not apply to any act to perfect an interest in property so long as Michigan state law permits that lien perfect and so long as the right to the perfection of the lien occurred prior to the filing date of the bankruptcy.
In other words, if the garage keeper had the right to the GKL under state law and did everything right to obtain the GKL, the Automatic Stay will not apply to it.
The debtor filing the bankruptcy will not be able to demand the return of the vehicle pursuant to the power of the Automatic Stay injunction.
Bankruptcy & the Michigan Garage Keeper Lien: The Big Takeaway
The bottom line with regard to a Garage Keeper Lien and bankruptcy is that timing is everything.
If you are considering filing for Chapter 7 or Chapter 13 bankruptcy and are struggling with a debt owed to mechanic or other “garage keeper,” it would be wise to consult an experienced bankruptcy attorney immediately—before any Garage Keeper or other common law or statutory lien can be perfected.
Attorney Walter Metzen has guided thousands of clients through the Chapter 7 and Chapter 13 bankruptcy process for over 20 years.
A Board-Certified bankruptcy expert, Attorney Metzen will ensure that you are well-informed and well-represented when dealing with such creditors.